Monthly review March 2020

Basic materials Sector

Coronavirus has caused a very sharp slowdown in global economic activity, which in turn has led to a crisis in the stock markets. While the Dow Jones is experiencing its worst quarter since 1987 (down 23% since the beginning of the year, as of March 31), some stocks have been lucky enough to stay afloat or even to grow. This is the case of TSE: CAS, the Cascades share, which rose by 1.50% in March.

The index that PolyFinances uses for the basic materials sector, of which Cascades is a part, is the INDEX/TSX: TTMT. It has fallen sharply as it is mainly composed of mining companies, which have been particularly affected by the crisis. Cascade is active in packaging and supplies made of cardboard and paper, including toilet paper. It is thanks to this that Cascades’ share price has been able to rise in the last month, although the market has collapsed. Rumours have been circulating that China is affected by COVID-19 and that factories producing toilet paper in China will cease to operate and supply other countries. As a result, consumers rushed to stockpile toilet paper, even though it is manufactured everywhere, not just in China. The result was that the share prices of all the companies producing these products, including Cascades, went up.

Industrial Sector

The impact of Covid-19 on Air Canada

The International Transport Association predicts that airlines compagnies will lose 252G US$ as a result of COVID-19. Obviously, Air Canada has had to make adjustments in recent weeks. The company announced on Monday that it will reduce its capacity by about 85% to 90% for the month of April to June. The cuts will come into effect on April 3. Air Canada will put 15 200 unionized workers and 1,300 managers on forced leave due to the pandemic. In addition, Rovinescu, the CEO of Air Canada, and Michael Rousseau, the chief financial officer, will forgo their salary during this period. For other directors and members of the board of directors, their salaries will be reduced by 10% and 25% respectively.

Consumer Cyclical Sector

The Impact of the Covid-19 Pandemic in March on the Sector

The consumer cyclical sector includes companies that provide non-essential goods and services. The economic environment has a great influence on the sector. As a result, the Covid-19 pandemic is having a significant impact on companies in this sector. Below is a comparison of the performance of various industries during the month of March in comparison with the S&P/TSX 60 and their respective indices S&P/TSX Capped Consumer Discretionary Index [TTCD:TSX].

March 2020: Performance of the S&P/TSX 60 Index: -20.22%.

Performance of the ^TTCD index: -26.23%.

Catering: Restaurant Brands International Inc. QSR :TSX] : -26.97%.

Online gaming and betting: Stars Group Inc. (The) [TSGI:TSX] : -19.83% (-19.83%) / Great Canadian Gaming Corporation [GC:TSX]: -36.91%

Automotive industry: Magna International Inc. MG :TSX] : -25.85% / Linamar Corporation [LNR:TSX]: -21.51%

It can be observed that companies in the consumer cyclical sector have been significantly affected by the current pandemic.  The restrictions put in place to counter the pandemic, such as the closure of non-essential businesses in Quebec, are having a negative impact on the majority of enterprises in the sector.

Energy Sector

Fragile oil in a volatile market 

At the summit of the Organization of Petroleum Exporting Products (OPEC) and its allies, which was held in Vienna recently, some countries (mainly Russia and Saudi Arabia) failed to agree on one summit objectives, namely production cuts to slow the fall in oil prices. The increase in supply and the decrease in world demand – mainly due to COVID-19 – will likely continue to decrease its price. Since the start of the year, the BRENT (global barrel of reference) and the WTI (American barrel) have lost almost half their value.

In Canada, the effect has already been felt, as Suncor’s share price and that of Canadian Resources Ltd fell by 20 to 25%. The injection of Russian and Saudi Arabia oil into the world economy, as well as the drop in world demand, means that Canadian producers will have to slow down their production. As of March 9, 2020, the price of the barrel of oil was $30, while the Alberta budget projected a price of $58 for the year. These two mass blows to Alberta have even made some analysts talk of a recession. However, it would appear that the impact on Canada would be less significant than in the United States, since few projects are expected to be completed in the near future and Canadian production is very constant.

Technology Sector

Shopify facing COVID-19

Last February, Shopify’s (TSE : SHOP) shares soared to historic levels with a 47% revenue growth compared with the same quarter last year. The e-commerce company is becoming a leader in its industry.

The coronavirus outbreak (COVID-19) did not prevent Shopify from outperforming the market. Shares went up 12.5% year to date compared to 18.6% decline in the S&P500. 

However, small and medium-sized businesses, at the core of Shopify’s business, are at risk and will take a hit. Sales of consumer goods went up drastically while comparable sales of apparel and accessories have fallen by more than 20% and Shopify businesses tend to sell this second kind of product.

Shopify is helping its sellers in different ways by offering loans through Shopify Capital and by extending its free trial for new subscribers

Communication Services

Five years ago, Bill Gates warned world leaders of a certain pandemic in the future and urged them to take preventive measures so that they would be ready for the outbreak of the disease. With advice ignored since such a situation had never been experienced, a growing portion of the world’s population must now be quarantined to slow the spread of the virus. In order to help manage the crisis, some companies are helping the government by supplying essential items that are in short supply or by providing flexible measures for their customers. This is the case of Bell, which, since March 18, announces that it will not apply additional charges to customers who exceed their limits of Internet consumption. Bell is also waiving a portion of the fees for overseas customers so that it can communicate with their peers in the country. In order to support Canadians abroad in this crisis, Bell is partnering with the Canadian consulate in the process of transmitting information related to the pandemic.

Consumer Defensive Sector

Consumer goods are in demand

Investors have tried to assess the potential impact of the COVID-19 epidemic on an already slowing global economy, which has resulted in falling global stock prices. Barely a month ago, the stock market hit records, but is now down almost 30% from those levels.

With people across the country rushing into supermarkets to stock up on canned food, Campbell Soup (CPB) and Hormel (HRL) are interesting titles to follow as demand increases. The two companies are trading at less than $ 50 USD per share.

Other companies such as Johnson & Johnson (JNJ) and Procter & Gamble (PG), which specialize in pharmaceutical and consumer products, also benefit from growing demand during the epidemic.

Utilities Sector 

As COVID-19 cases explode in North America, the pandemic is disrupting all sectors and sub-sectors. The health crisis caused by the virus has significant economic repercussions and experts cannot predict the magnitude of the future consequences, even with significant economic stimuli from governments. The utilities sector, for its part, must keep the green light in order to support the industry and allow populations to have access to essential services.

Although industrial demand for electricity is likely to decrease in the coming weeks, residential demand should increase, especially given the trends in telework. The most important question for companies in the sector is how long the current situation may continue. The situation has also encouraged several utilities companies to announce an extension of the residential services offered, even with a lack of payment.

 Bibliography 

Sud Ouest. (6 mars 2020). Réunion de l’Opep à Vienne : échec des pourparlers avec la Russie. [En ligne]. Tiré de : https://www.sudouest.fr/2020/03/06/reunion-de-l-opep-a-vienne-echec-des-pourparlers-en-vue-avec-la-russie-7287179-705.php 

TVA Nouvelles. (12 mars 2020). Les prix du pétrole poursuivent leur recul. [En ligne]. Tiré de : https://www.tvanouvelles.ca/2020/03/12/les-prix-du-petrole-poursuivent-leur-recul 

Alini & Russell. Global News. (9 mars 2020). What the oil plunge means for Canada and Alberta. [En ligne]. Tiré de : https://globalnews.ca/news/6649905/oil-price-plunge-impact-canada-alberta/

Les affaires (12 février 2020) Shopify dépasse les attentes. Tiré de https://www.lesaffaires.com/techno/technologie-de-l-information/shopify-depasse-les-attentes/615920

Bowman, J. (29 mars 2020) Shopify has a coronavirus problem, and no one is talking about it. The Motley Fool. Tiré de  https://www.fool.com/investing/2020/03/29/shopify-has-a-problem-no-one-is-talking-about.aspx

Jackson, Emily. (30 mars 2020). Air Canada to reduce workforce by 16 500 as it parks planes during COVID-19. Financial Post. [En ligne]. Disponible: https://business.financialpost.com/transportation/air-canada-to-reduce-workforce-by-16500-as-it-parks-planes-during-covid-19

Fool.ca. (20 Mars 2020). Out of Toilet Paper? This Toiler Paper Stock Has More for Investors https://www.fool.ca/2020/03/20/out-of-toilet-paper-this-toiler-paper-stock-has-more-for-investors/

https://english.alarabiya.net/en/variety/2020/03/25/Bill-Gates-predicted-a-coronavirus-like-pandemic-five-years-ago-We-re-not-ready-https://finance.yahoo.com/news/bell-team-stepping-serve-canadians-215500641.html

https://www.forbes.com/sites/sergeiklebnikov/2020/03/16/here-are-20-stocks-to-buy-in-the-coronavirus-economy-according-to-market-experts/#4c989cb56176

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